Variance Covariance Orders and Median PreservingSpreads

A random variable dominates another random variable with respectto the covariance order if the covariance of any two monotone increasingfunctions of this variable is smaller. We characterize completely thecovariance order, give strong sufficient conditions for it, present a numberof examples in concrete economic applications, and provide naturalextensions for the multivariate context.[...]

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Year of publication:	2009-03-24
Authors:	Malamud, Semyon ; Trojani, Fabio
Institutions:	Swiss National Centre of Competence in Research North South <Bern>
Subject:	Kovarianz <Stochastik> \| covariance structure \| Varianz \| variance principle \| Medianwert \| Median

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1 Introduction
2 Variance Covariance Orders
3 Relation to Median Preserving Spreads andSSD
4 Sufficient Conditions for Special Distributions
5 Multivariate Extension
6 Applications
6.1 Countercyclical Macroeconomic Uncertainty
6.2 Stochastic Discount Factor Bounds
6.3 Cross Sectional Variance of Consumption
6.4 Cross-Sectional Variance of Beliefs
6.5 Mean-Semi-Variance Efficient Portfolios
6.6 Continuous-Time Modeling and Credit Risk
References
APPENDIX

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